Auditors accuse EU Innovation Fund of deploying too slowly

The Innovation Fund, which was launched in 2020, is believed to be one of the world’s largest programmes for scaling-up of innovative net zero technologies, with an estimated budget of €40 billion up to 2030.

However, as of June 2025, actual payments to projects were only €332 million and overall the fund’s project portfolio achieved less than 5% of the emissions reductions that were anticipated. Indeed at the end of 2024, only five projects out of the 208 that had been allocated funding reported reductions in greenhouse gas emissions.

In its report, the European Court of Auditors (ECA) highlights the importance of the fund to the EU’s decarbonisation efforts and its competitiveness in clean technologies as the reason for the audit to assess, with the significant amount of funding allocated, if it was delivering relevant results.

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With a proposed €451 billion European Competitiveness Fund for the next financial framework (2028-2034), which also aims to scale up innovations in strategic technologies, the findings also should be applicable for its design.

Innovative technologies

The Innovation Fund was devised to support the development of innovative technologies that are not yet commercially viable, including renewable energies, energy storage and carbon capture, utilisation and storage.

Its financing is via the EU emissions trading system, which accounts partly for its slow deployment as its revenue depends on carbon market prices and thus the level of available funding is inherently uncertain with no guaranteed minimum level. Moreover, combined with the long development timelines for projects, substantial funds have been accumulated without being spent.

Funds are disbursed on the reaching of milestones, including financial close and entry into operation as well as verification if the emission reduction delivered.

The audit, which covered the period from 2020 to June 2025 and included visits to seven projects in Denmark, France, Germany, Italy and Spain, found that many of the projects had experienced delays and around one in five had failed before becoming operational, despite the application of the requisite selection criteria.

Recommendations

The ECA in its report makes three key recommendations based on its findings:

1. Establish a structured analysis to guide the allocation of the innovation fund resources to decarbonisation pathways and emerging policy priorities, with implementation targeted in 2027.
2. Examine additional measures to contribute to the faster deployment of funds, taking into account the long term nature of projects being financed in order to contribute to achieving faster results and reducing the accumulation of assets, with implementation targeted in 2030.
3. Improve project assessment of potential reductions in greenhouse gas emissions and of both financial and technological maturity of projects and address delays and cancellations with increased flexibility on issues around financial close and emissions verification.

Commenting that the Innovation Fund has strong potential to strengthen the EU’s clean-tech innovation and competitiveness while reducing greenhouse gas emissions, João Leão, ECA member in charge of the audit, said: “Slow deployment and significant project delays and terminations have limited results so far. To maximise its impact, clear strategic priorities, faster deployment of funds, and more realistic project assessments are needed.”

Commission response

In its reply the European Commission comments that the Innovation Fund is at a relatively early stage in the programme and project monitoring periods and the portfolio is still expected to deliver on the planned emission avoidance. 

The Fund has neither a quantified nor an intermediate target for emission avoidance for 2030, although each project does has quantified targets.

The Commission highlights that, by the end of June 2025, just over 7% of projects had entered into operation and the majority of supported projects are still on track to enter into operation. Moreover, only some of these projects had completed the initial years of monitoring their emission avoidances and have thus reported on it.

With the projects audited by the ECA early on in implementation, they show relatively good progress in terms of achieving greenhouse gas emissions reductions, according to the Commission. Thus it is too soon, on the basis of these early and limited results, to draw any valid conclusions on the overall Innovation Fund portfolio performance in terms of achieving emission avoidance. 

Challenging market

The Commission also notes that the majority of the supported projects, corresponding to 98% of the funding, are large and complex. They are being implemented in a challenging market context including rising costs due to inflation, the war in Ukraine and supply chain disruption. Most delayed or terminated projects had not faced technical issues but rather significant hurdles in building their business case as a consequence of the exceptional and challenging market environment since 2020. 

Although project risks had been assessed at the time of awarding funding, many of the external challenges were of an extraordinary magnitude – and in some cases including events that may qualify as force majeure – so they could not have been anticipated during evaluation.  

The implementation of the Innovation Fund is the responsibility of the Directorate-General for Climate Action (DG CLIMA).

The European Climate, Infrastructure and Environment Executive Agency (CINEA) is responsible for managing the grant agreements and organising calls for proposals. The European Investment Bank (EIB) is responsible for the sale of ETS allowances and the management of Innovation Fund assets.